Disinvestment policy

Industrial Economics

1. DISINVESTMENT POLICY
Dr. SunitaSukhija
Assistant Professor in Commerce
Govt. National College, Sirsa(HRY)

2. MEANING of Disinvestment
Insimpleterms,Disinvestmentistakingyourmoneyoutofthe
companiesyouinvestedin.
Forexample,
RaminvestedRs.1,00,000inABCLtd.forthelastfewyears
for500sharesinthecompany.Today,heplanstosellhisshares
toShyam.HereRamisdisinvestinginABCLtd.
Theword,disinvestmentisgenerallyusedinthecontextofPublic
SectorUndertakings(PSUs).Disinvestmentcanalsobedefined
astheactionofanorganisationsellingorliquidatinganasset
orsubsidiary.
WhenthegovernmentsellsitssharesinPSUs(Companies
wherethegovernmenthasmorethan51%ownership)to
PrivateEntities,itiscalleddisinvestment.
Inmostcontexts,disinvestmentstypicallyreferstosalefromthe
government,partlyorfullyofagovernmentowned
enterprise.

3. The Government in July 1991 initiated
the disinvestment process in India,
while launching the New Economic
Policy (NEP). The Government had
appointed the Krishnamurthy
Committee in 1991 and Rangarajan
Committee in 1992. Both the
committees have recommended the
the disinvestment due to poor
performance of PSUs.

4. Purpose of disinvestment
Disinvestment is aimed at reducing
the financial burden on government
due to inefficient PSUs and to improve
public finances . it introduce
competition and market discipline and
helps to depoliticise non essential
services.

5. Objectives
To reduce the financial burden on the
government
To improve public finance
To fund growth
To introduce , competition and market
discipline
To encourage wider share for
ownership
To depoliticise non essential services

6. To help public enterprises upgrade
their technology to become
competitive.
To rationaliseand retrain their
workforce.
To build competence and strengthen
their R & D.

7. Disinvestment also assumes
significance due to the prevalence of
an increasingly competitive
environmental , which makes it difficult
for many PSUs to operate profitability.
This leads to a rapid erosion of value
of the public assets making it critical to
disinvestment early to realize a high
value

8. Types of Disinvestment
1. Minority Disinvestment
Minority disinvestment in PSUs is such that, at the end of it, if
the government of India retains a majority stake (typically
more than 51%) in the company, it ensures management
control.
2. Majority Disinvestment
Majority disinvestment in PSUs is such that, at the end of it,
the government of India retains a minority stake in the
company i.e. it sells off a majority stake.It is also called
Strategic Disinvestment.
3. Complete Disinvestment
Complete disinvestment or privatization is a form of majority
disinvestment wherein 100% control of the company is
passed on to a buyer i.egovernment of India completely
disinvests from that PSU.

9. History of Disinvestment in
India
In India, the new economic policy has given rise to
significant focus for the privatization of public enterprises
in the year 1992.Disinvestment is a method of
privatization for public enterprises.
It is a major step towards privatization and liberalization
of the Indian economy.
The Indian economy was adversely affected by
bankruptcy during the period 1981-91.
The public sector which was supposed to achieve new
heights and was taught to be the perfect path for India’s
economic growth, right from independence was
characterized by poor and sick performance.
In the year 1991, there were 236 operating PSUs, of
which only 123 were profit making.

10. Major divestment steps were taken in the
past byBJP led NDA government in the
tenure between1999-2004, made four
strategic disinvestments –
Bharat AluminiumCompany(BALCO)
andHindustan Zinc, both toSterliteIndustries
Ltd.
Indian Petrochemicals Corporation Limited
(IPCL)toReliance Industries Ltd.and
VSNLto the Tata group


11. What Is the Current
Disinvestment Target in India?
The government in itsinterim budget
2019, set the disinvestment target for FY
2019-20 at Rs. 90,000 crores, higher
than the Rs. 80,000 crorebudgeted for
the ongoing year that it said would be
exceeded.
The government had raised Rs 35,532
crorefrom disinvestment till December of
2018.


12. Importance of Disinvestment
Finance the increasing fiscal deficient
Financing large scale infrastructure
development
For investing in economy to
encourage spending
For retiring government debt almost
40-45% of centre’s revenue receipt go
towards.
For social programme like health and
education.

13. Thus, the disinvestment is aimed to
reduce or mitigate fiscal deficit, bring
about a measure of economic
stabilisation or to improve efficiency in
public enterprises through structural
adjustments initiated to improve their
efficiency and productivity.

14. Thanks